Rational Inattention With Running Cost As A Measure of Cognitive Effort

Behavioral economists are increasingly making forays in decision-making modeling that takes in information from the external environment and the internal settings of agents, such as models of rational inattention. A key ingredient to these models is the cognitive effort of acquiring information. However, such costs are not generally well understood. One approach to solve this issue is measuring the running cost of cognitive tasks. Here we provide a model of rational inattention with running cost. We test the model on a double auction experiment. The results agree that a hyperbolic function of running cost can explain the deviation from the ”correct response”. Furthermore, We find that the relation between performance and cognitive effort positive. But utility and cognitive effort have negative relation. Subjects try to increase performance by cognitive effort exertion when the expected utility was higher.